Despite central banks’ austerity measures to avert a lengthy rising inflation period, stock market indices have recently finished three weeks in the negative.

Is this a hint that investors are becoming more conscious of macroeconomic issues? I feel this could be a setup for RED October. Historically markets have dropped in October, but this drop could be HUGE.

Next week, the succession of indicators expected in the United States will allow us to measure the pulse of the world’s largest economy and evaluate the Fed’s leeway.

Following a week of tumultuous trading, US markets did gain on Friday morning. However, most of the attention is still focused on interest-rate announcements and how central banks worldwide intend to deal with historical inflation.

Federal Reserve Notes

Because Fed policymakers do not want inflation to become as entrenched as it was in the 1970s, many observers anticipate the central bank to raise interest rates for the third time in a row later this month.

This week, Jason Furman had an intriguing view on inflation. Under Obama, he was head of the White House Council of Economic Advisers, although he is far from a Biden supporter.

According to him, the Fed will need to maintain a 6.5 percent unemployment rate for two years in order to return inflation to 2%. In other words, the companies will have to lay off more employees, which will almost certainly result in a recession.

The typical disclaimer to the “unemployment rate” remains: it is poorly computed, does not reflect real unemployment, and does not account for individuals who are underemployed or working below their capacity.

Loretta Mester, Chairwoman of the Cleveland Federal Reserve Bank, stated this week that she is not sure that inflation has peaked, adding that the Fed’s mission remains to create a gentle landing. Furthermore, we continue to observe weakening economic statistics.

The Fed notes in its new Beige Book that consumer spending is moving away from discretionary goods and toward necessities. Auto sales have plummeted and have been below peak levels since July, while industrial activity has also decreased.

Residential real estate loan demand has fallen in tandem with business real estate loan demand. The economy’s outlook was “generally negative,” with forecasts for falling demand to persist over the “next six to twelve months,” according to the Beige Book.

To summarize, Fed policymakers have downplayed recession fears after two consecutive quarters of negative economic growth and now forecast worsening economic conditions until the middle of 2023.

By rejecting the recession, the Fed further erodes what little credibility it has left, mainly because they will almost certainly be compelled to switch direction on recession rhetoric next year.

BlackRock: Recession 2023

In a letter to clients this week, BlackRock ($8 trillion in assets under management) predicted a “significant decrease” in US GDP by mid-2023, indicating the onset of a recession by early next year at the latest. They join a wave of other investing, business, and financial firms in predicting a recession. Officially or technically, it has arrived or will arrive shortly.

Bank Stock Opportunity

Banks appear to be outperforming in the face of rising interest rates. European banks, in particular, saw their shares climb after last week as investors banked on increased earnings.

The Bank of England

Regarding interest rate movements, the Bank of England postponed its September policy meeting until September 22 due to the death of Queen Elizabeth II. The BOE’s latest interest rate rise was its largest since 1995, as the country’s inflation rate surpassed 10% in July.

Key Events, Market Movers & Calendar

• Tuesday, September 13 – CPI (MoM) (August)
• Thursday, September 15 – Retail Sales (MoM) (August)
• Fed Talk

The next volatility pool for speculating on the evolution of US key rates is slated for Tuesday, with the August US inflation data release. Investors will also pay attention to US retail sales (Thursday) and the University of Michigan confidence index (Friday) to determine if the US consumer is still willing to spend.

The Beige Book report will be issued, and Jerome Powell will make a noteworthy conference presentation for Federal Reserve watchers. The OPEC+ summit will occur amidst increased debate about output cutbacks, with several producing nations anticipating near-term oil surpluses.

The Fed’s next meeting is slated for the following week, on September 21, with the now-standard quandary: a 50 or 75-point increase?

RATES

Fed Chairman Jerome Powell’s sustained harsh language this week helped firm up US bond rates, with the 10-year yielding 3.31 percent, slightly higher than last week’s level. The ECB rate rise resulted in a logical adjustment in the Bund (1.71 percent), OAT (2.28 percent), and all other European currencies. Over the last decade, Italian and Greek debts have climbed by more than 4%.

COMMODITIES

OIL

Oil lost some ground this week, with Brent oil falling briefly below the USD 90 level. Because the extended cartel has committed to cut output by 100,000 barrels per day, these price levels may force OPEC member nations to take additional steps to sustain prices.

This is a symbolic gesture to demonstrate that the cartel has the ability to act at any time to sustain the market. Another notable event this week was the unexpected increase in US inventories, which jumped by 8.8 million barrels despite expectations of a 2 million decrease. This rise is connected to a drop in US exports as well as a drop in refining activity.

Brent crude oil is trading at USD 90 per barrel, while the US benchmark, WTI, is trading near USD 85. In the European gas market, where prices remain unpredictable, European Union ministers will gather this weekend to agree on a number of steps to slow the rise in gas costs.

GOLD & PRECIOUS METALS

With the exception of copper, which has increased substantially for four sessions to $7,810 per metric ton on the LME, industrial metals prices have mostly steadied.

Workers at the world’s biggest mine, Escondida in Chile (owned by BHP Group), are preparing to strike in order to demand improved safety measures. Operators recall a similar incident in 2017 that significantly constrained global supply. Finally, gold recovered some ground, reaching USD 1720.

CRYPTOCURRENCY

Bitcoin had a rough start to the week, but it appears to be improving by the conclusion. On Friday, the leading cryptocurrency was approaching the USD 21,000 level. The crypto community will be watching closely next week when Ethereum transitions from proof-of-work to proof-of-stake between September 13 and 15.